FPC002B: Ethics and Professionalism in Financial Advice - Accounting and Finance Assessment Answer

Case study
You are a senior financial adviser who has been employed by Gardener Green Financial Services Pty Ltd (GGFS) for the past four years. Jim Gardener (63) established his business 20 years ago and went into partnership with Carly Green (45) five years ago to establish GGFS, which holds an Australian financial services licence. Jim and Carly are the principals and owners of GGFS, and Carly is the responsible manager.
Together with Jim, Carly and yourself, GGFS employs a paraplanner (Sam), an office manager and two client support officers.
Jim has 35 years’ experience as a financial adviser. His clients range in age from 55 to 75 years, and are mostly small to medium-sized business owners and self-funded retirees who are focused on managing the business and personal wealth they have accumulated to support themselves in retirement and provide for their families in the event of their death or disability. Jim prefers to look after his existing clients and any referrals for new clients go to Carly or you, depending on the type of advice they need.
Carly has 20 years’ experience as a financial adviser. Her clients range in age from 35 to 55 years, and are established professionals and the well-off children of Jim’s clients. Many of her clients have self managed superannuation funds. She has a strong interest in improving women’s financial literacy and wellbeing.
Her daughter, Sam, is the practice’s paraplanner and has completed an approved Bachelor of Financial Planning degree as she wants to become a financial adviser.
You have 10 years’ experience as a financial adviser and are fully qualified. You have experience with a wide range of strategies and clients. Half of the clients you service came with you to GGFS. When Jim or Carly are away or on leave, you provide advice to their clients. You agreed to supervise Sam while she completes her professional year.

Scenario 1
Sam, the provisional relevant provider, is about to meet with a new client — Kelly King. Kelly is the granddaughter of Jim’s longstanding clients, Cora and Fred King. Kelly has just turned 21 and is about to receive a substantial sum from a trust that was set up by her grandparents when she was born. Kelly is their only grandchild and she has just been made aware of the trust — not even her parents know about the trust. Cora and Fred have insisted that Kelly receive financial advice before she receives the funds to ensure she has a good plan in place to manage them wisely for her future.
Sam has attended many client meetings as a paraplanner, but this is her first meeting in her new capacity. She doesn’t have very much information about Kelly and knows she will need to collect a lot of information at this meeting. She is aware that she is required to provide advice that will be in Kelly’s best interests and
asks for your advice on how to approach this interview.
You ask Sam about her current plan for the interview and she replies: Well, as Kelly’s grandparents have been Jim’s clients for a long time and they’re very wealthy,
I’m assuming Kelly will be pretty well-informed about investments in general and how financial planning works, so I shouldn’t have to go into a lot of detail about these aspects. I’ve already sent her my FSG, so I’ll get her to acknowledge she’s been given that. I know that the trust money has been invested in a balanced portfolio including fixed interest, shares and property. She has a long-term investment horizon because she’s only in her 20s, so maybe she’ll want more growth investments — we’ve got some really great direct equity model portfolios that are generating high returns for our other clients that I can talk to her about. However, her grandparents may not be happy for her to change the investment mix — we may need to check with them about that. I doubt whether she’ll need any insurance — she’s coming into a lot of money and anyway, her family would look after her.

Question 1 
LO1: Explain the role of ethical frameworks and professional standards within the financial planning profession.
LO2: Assess the impacts of cognitive, judgement and decision biases on financial advisers and their clients.
LO3: Demonstrate an understanding of professional obligations and conduct required by the values and standards of the FASEA Code of Ethics.
LO4: Identify and solve ethical dilemmas encountered as a financial adviser through application of ethical frameworks and professional standards.
(a) Briefly discuss the issues raised by Sam’s current plan for her interview with Kelly in relation to:
• barriers to ethical decision making which may influence Sam
• compliance with relevant standards of the FASEA Code of Ethics
• compliance with a relevant value of the FASEA Code of Ethics. 
(b) Based on your response to Question 1(a), what advice would you give Sam about adjusting her approach and communicating with Kelly at the first meeting? 

Scenario 2
You joined Sam to meet with Kelly for the first interview. You were pleased to see that Sam took on board your feedback and suggestions and adjusted her approach to the interview. Sam obtained a lot of information during the interview. It emerged that Kelly is in her second year of an IT degree, studying full-time while supporting herself with Austudy payments and casual work as a barista and website designer. While her grandparents are wealthy, her parents are not. They were nearly bankrupted during the global financial crisis due to the collapse of their business and have been careful to keep the details from Kelly’s grandparents. While Kelly doesn’t have a lot of knowledge about financial matters or investments, she is very keen to become more educated. Her parents’ experience has made her very conscious of security and she wants to prudently invest her grandparents’ gift. Kelly asks Sam if receiving the funds will affect her current entitlement to Austudy. When Sam confirms that it will, Kelly asks if she would be better off giving the funds to her parents to invest so she can keep her Austudy benefits.
Apart from purchasing a small second-hand car, Kelly is happy to invest most of her funds for the next five years and reinvest the earnings (unless she loses her Austudy benefits and needs income). The risk profiling questionnaire she completed with Sam indicated that she had a balanced risk profile overall.
However, her answers to some of the questions relating to her perception of risk and how she would react to market volatility and poor investment performance are more indicative of a moderately conservative profile.
Sam isn’t sure whether she should consider an investment portfolio for Kelly with an asset allocation suitable for a balanced risk profile (based on the results of the full questionnaire), or moderately conservative profile (based on Kelly’s answers to these particular questions). Kelly has only a very small superannuation account with a hospitality industry fund, with minimum insurance. She doesn’t have a will or enduring power of attorney. She says she hasn’t discussed her grandparents’ gift with her parents as it seems her grandparents wanted it kept secret, but she admits she feels a bit uneasy about maintaining the secrecy. She doesn’t understand why Sam is asking her about these aspects.

LO1: Explain the role of ethical frameworks and professional standards within the financial planning profession.
LO2: Assess the impacts of cognitive, judgement and decision biases on financial advisers and their clients.
LO3: Demonstrate an understanding of professional obligations and conduct required by the values and standards of the FASEA Code of Ethics.
LO4: Identify and solve ethical dilemmas encountered as a financial adviser through application of ethical frameworks and professional standards.
(a) Briefly identify and describe the ethical issues and potential barriers to ethical decision making raised by Kelly’s question relating to her Austudy benefits. In responding to Kelly, what ethical framework should Sam adopt? 
(b) Assuming Sam proceeds to recommend a balanced investment portfolio for Kelly and she accepts this advice, how would Sam be able to demonstrate that she has obtained informed consent to recommend and implement the advice, and that her advice was in Kelly’s best interests. 
(c) Does Sam have any obligation to ask Kelly questions beyond those required to provide investment advice? What are some of the potential issues Sam is attempting to uncover, and why?

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